dwot (36.43)

Pension Shake Down

10

I was looking back and I re-read what I wrote in The Glory of Ignorance. I mentioned my beliefs in pensions back then and now we are seeing the pension problems.

Naked capitalism has a post pulling together pension articles from many sources. If the investment losses aren't enough, these posts are about the abuse of the management of pensions being used for personal gain. Think these guys that are set for life with the millions they made putting people's pension dollars in scary dangerous investments are going to give it back now that the pension money is lost?

My wife (a teacher here in the US) just got a letter today, saying that she is going to have to make her permanent choice about her retirement plan. Here are the three choices (summarized by me, so any errors are mine):

1) Stick with the current plan. Her retirement contributions go towards an investment portfolio that she chooses, and the state's contributions go toward her health insurance, survivor's benefits, etc.*

2) Go with the all "on your own" plan. Her contributions (and I believe the state's, too) are put into a retirement investment plan (that she controls), and she's on her own for after-retirement insurance, benefits, etc.

3) Stick with "the classic" (my phrase). Averaging her highest three years of pay, she gets 2.2% of that for every year she is credited with work. The state takes care of health insurance, benefits, etc.*

*At the end there's a nice little asterisk saying (basically) "If we have retirement benefits, if we deem you are eligible, and if the whole thing hasn't collapsed into a quivering mass of bankruptcy..."

*sigh* So she turns to me and says, "Whatever you think is best..." Crap!

Plans 1) and 2) look pretty crappy, especially thinking about all those people who are trying to retire into a Recession-Depression-Correction *cough* 20-30 years down the road, we may be in the same fix...and your unrealized gains can just evaporate during the last 6 months of work.

Plan 3) is "the Classic" because it's straight credit for time served...you won't get rich, but you (probably) won't starve too badly. On the other hand, 20 years ago, gas was a lot lower, food was a lot lower, and health care was a lot lower...if/when practical inflation starts to take affect, then what she gets from retirement may start to look pretty small.

(The "on your own" for health care for option 2) looks like a pretty bad decision, to me; you're 65, your "investment system" has crashed, and now you're out of a job....)

Overall, my wife is asking me to look into my tarnished crystal ball and try to figure out how she's going to live 30 years from now...

With today's environment, how do you plan on anything? How do you make a decision today that you won't sorely regret in 30 years...?

...to put it bluntly, how do you gladly pick with screw-job you're going to get?

Why do I bring this up? Because, like you, dwot, retirements and pensions have been on my mind a lot lately. I'm not expecting fire raining down from the sky or bands of septagenerians looting the countryside, but it wouldn't surprise me a bit if pension plans start going under.

We had a neighbor (who recently died) whose retirement from his company went under. He got stuck with the federal bailout for his retirement, and for the last 15-20 years of his life he had to live on $75 a month....after putting 25+ years into his job.

I hope the system is better in Canada...right now, I'm planning on working until the roll me into the crematorium; it's about the only retirement system that makes sense...

I would be concerned about the ability to actually cover the pension promised and the benefits.

I'd be going number 2 without a second thought. I do not trust that the health insurance would be available given the stress on it and 2.2% per year worked is a norm by today's standard but it has been paid for by the ponzi nature of pyramid plans up to now. I don't see how it can survive and right now it is likely paying your wife's contributions to someone else. Each year pensions continue as is means when they are forced to correct the correction will be toucher and it the cuts will be deeper as more people will have collected far more then they contributed.

With my current job I am supposed to get 2% per year, but I am planning for 1% per year and the plan is supposed to allow up to 70% of your maximum income. These pensions are sweetheart deals that are unsustainable. The failure to be realistic is going to hurt those at the bottom of the pyramid badly.

I'm a teacher in NYC and our own pension system is under investigation. I was brought up to believe that 'someone else' was better at managing money at me. Now I see that the 'someone else' is going to have to be me.

I would definitely not plan around the government being able to take care of me in the future.